Provisions applicable to private limited company under this act Companies Act 2013 Provisions applicable to private limited company under this act CA SYED USMAN

Maximum Number of members A quick perusal of the Companies Bill 2013 shows that many exemptions given to Private limited companies under Companies Act are withdrawn. . The following provisions are applicable to Private limited companies under the new Companies Bill 2013. Maximum Number of members There is no change in the minimum number of member which is 2. The maximum number the members in a private limited company are increased from 50 members to 200 members. (Clause 2 sub section (68)). Financial Year for the Balance Sheet Financial year of the balance sheet will be 31st march for all the companies. For any relaxation approval from NCLT is required. (Clause 2 sub section (41)). CA SYED USMAN

Further Issue of Shares The exemption given to private limited companies regarding further issue of shares is withdrawn. For Further issue of shares section 81 compliance applicable to private limited companies. Valuation of shares shall be done based on the certificate issued by registered valuer subject to such conditions as may be prescribed. (Clause 62) Number of days of Notice of General Meetings Even private company has to comply with 21 clear days notice, so earlier 7 days notice is dispensed with (Clause 101) Postal ballot for passing the Resolutions Earlier passing of resolution by postal ballot is applicable only to listed company, now even private company can pass certain resolution by postal ballot.(clause 110) CA SYED USMAN

Board Report to give more details Board report shall contain the following information (clause 134(3)) Extract of Annual return Number of meetings of the board Directors Responsibilty Statement A statement on declaration by independent directors Company’s policy on directors’ appointment and remuneration including criteria for determining qualifications, positive attributes, independence of  a director and other matters if required by Section 178 provided under  sub- section (3) of section 178; Explanations or comments by the Board on every qualification, reservation or adverse remark or disclaimer made— by the auditor in his report; and by the company secretary in practice in his secretarial audit report CA SYED USMAN

Particulars of loans, guarantee s or investments Particulars of contracts or arrangements with related parties referred to in sub-section (1) of section 188 in the prescribed form The state of the company’s affairs The amounts, if any, which it proposes to carry to any reserves The amount, if any, which it recommends should be paid by way of dividend Material changes and commitments, if any, affecting the financial position  of the company which have occurred between the end of the financial year  of the company to which the financial statements relate and the date of the report; The conservation of energy, technology absorption, foreign Exchange earnings and outgo, in such manner as may be prescribed; a statement indicating development and implementation of a risk management policy for the company including identification therein of elements of risk, if any, which in the opinion of the Board may threaten the existence of the company The details about the policy developed and implemented by the Company on corporate social responsibility initiatives taken during the year CA SYED USMAN

Corporate Social Responsibility In case of a listed company and every other public company having such paid-up share capital as may be prescribed, a statement indicating the manner in which formal annual evaluation has been made by the Board of its own performance and that of its committees and individual directors Corporate Social Responsibility Every company including private company having either net worth of rupees five hundred crore or more turnover of rupees one thousand crore or more net profit of rupees five crore or more During any financial year shall constitute a CSR committee of board consisting of 3 or more directors out of which atleast one director shall be an independent director ,then 2% of average net profits of the immediately preceding three financial years should be spent for CSR (Clause 135). Schedule VII prescribes the activities to be included under Corporate Social Responsibility CA SYED USMAN

Appointment of Auditors An auditor will be appointed in the first annual general meeting for a five-year term. Thereafter, the auditor will be changed as per the members’ decisions. An audit firm cannot be re-appointed for more than two five-year terms. (i.e. 10 years) For re-appointment purposes for the individual auditor or audit firm, there has to be a gap of five years Another interesting clause is that members can resolve to ask the audit firm to rotate the audit partner and team every year Another interesting clause is that members can resolve to ask the audit firm to rotate the audit partner and team every year(clause 139) Appointment of Internal Auditor Such class or classes of companies as may be prescribed shall be required to appoint an internal auditor, who shall either be a Chartered Accountant or a Cost Accountant or such other professionals as may be decided by the Board conduct internal audit of the functions and activities of the company. (Clause 138). CA SYED USMAN

Duties of Directors A director of a company shall act in good faith in order to promote the object of the company. A director of a company shall exercise his duties with due care, skill and diligence. A Director of a company shall not assign his office and any assignments so made shall be void. If a director of the company contravenes the provisions of this section such director shall be punishable with fine which shall not be less than Rs.1, 00,000/- but which may extend to Rs.5, 00,000/- (Clause 166). Borrowing Powers   The exemption given to private limited company for borrowings under section.293 is withdrawn. Borrowing powers now require approval by shareholders and applicable to both private and public limited companies. (Clause180). CA SYED USMAN

Related party Transactions Loan and Investment Provisions of sections 372A of old act will be applicable to private company also, earlier private company was exempted from it  Related party Transactions Only with the consent of the Board of Directors given by a resolution at a meeting of the Board and subject to such conditions as may be prescribed company shall enter into any contract or arrangement with a related party with respect to Sale, purchase or supply of any goods or materials; Selling or otherwise disposing of, or buying, property of any kind; Leasing of property of any kind; Availing or rendering of any services; Appointment of any agent for purchase or sale of goods, materials, services or product. Such related party's appointment to any office or place of profit in thecompany, or its subsidiary company or associate company. CA SYED USMAN

But in some cases for RPT it require BOD approval plus prior approval of company by special resolution Paid-up share capital of the company is equal to or exceeds Rs. 1 Crore, The value of transaction individually or taken together with previous related party transactions during a financial year, exceeds 5 percent of the annual turnover or 20 percent of the net worth of the company as per the last audited financial statements of the company, whichever is higher, The transaction relates to appointment to any office or place of profit in the company, its subsidiary company or associate company at a monthly remuneration exceeding Rs. 1 Lakh. The transaction relates to remuneration for underwriting the subscription of any securities or derivatives thereof of the company exceeding Rs. 10 Lakhs. No member of the company shall vote on such special resolution, to approve any contract or arrangement which may be entered into by the company, if such member is a related party. In case of wholly owned subsidiary, the special resolution passed by the holding company shall be sufficient for the purpose of entering into the transactions between wholly owned subsidiary and holding company. CA SYED USMAN

Appointment of Key Managerial Personnel Loan to Directors Earlier provision of section 295 regarding loan given to director is not applicable, now section 295 provisions will be applicable to private company also(clause 185) Appointment of Key Managerial Personnel Every company belonging to such class or description of companies as may be prescribed shall have the following whole time Key Managerial Personnel (Clause 203).   Managing Director or Chief Executive Officer or Manager and in their absence a Whole Time Director. Company Secretary and; Chief Financial Officer. Secretarial Audit Report Every listed company and company belonging to other class of companies as may be prescribed shall annex with its board report a secretarial audit report given by practicing company secretary in such form as may be prescribed. (clause 204). CA SYED USMAN

Director to stay in India for 182 days Every company shall have at least one director who has stayed in India for a total period of not less than one hundred and eighty-two days in the previous calendar year Every company existing on or before the date of commencement of this Act  shall, within one year from such commencement or from the date of notification of the rules in this regard as may be applicable, comply with the requirements of this provision (Clause 149(3)). Board and Annual General Meeting minutes Hereafter the companies shall follow the Secretarial Standards while making the minutes of Board and General Meeting. (Clause 118 (10)) Books of Accounts The Books of Accounts may be kept in electronic form also. (Clause 128) CA SYED USMAN

Existing Section in Companies Act, 1956 Managing Director The exemption given to private limited company under section 269 for appointment of Managing Director is withdrawn. Provision relating to the appointment of Managing Director is also applicable to the private limited companies (Clause 196). A comparison is made with respect to exemptions given in the Companies Act, 1956 and new Companies Bill 2013. The following are the exemptions available to Private Limited Companies in Companies Act 1956 and its status in New Companies Act 2013 S.No Existing Section in Companies Act, 1956 Nature of exemptions in the Companies Act, 1956. Status in Companies Act 2013 1 Section 257(2) Statutory notice, etc., is not required for a person to stand for election as a director Clause 160 – Exemption is withdrawn. CA SYED USMAN

Exemption from Certificate of Commencement of business 2 Section 77(2) Financial assistance can be given for purchase of or subscribing for its own shares in its holding company, Whereas not applicable to Public company Clause 67 – Restrictions on purchase by Company or giving of loans by it for purchase of its shares. Private limited company not specifically mentioned in the clause. Hence exemption is available. 3. Section 81(3) Further shares can be issued without passing special resolution or obtaining central government’s approval and without offering the same necessarily to existing shareholders Clause 62 – Further issue of shares now applicable to Private limited Company also. Exemption is withdrawn. 4. Section 149(7) Exemption from Certificate of Commencement of business Clause 11 – Commencement of business declaration has to be filed by Private Limited Company. Exemption is withdrawn. 5. Section 198(1) No restriction on the payment of Managerial Remuneration on net profits Clause 197 – Overall maximum managerial remuneration applicable to Public Company. For Private Limited Company this section is not applicable.Exemption is withdrawn. 6. Section 252(2) Need not have more than two directors Clause 149 – Minimum two directors. There is no change in the existing provisions. Exemption continues. CA SYED USMAN

A proportion of directors need not retire every year 7 Section 255(1) A proportion of directors need not retire every year Clause 152 – The exemption continues but as per the AOA of the Company. 8. Section 259 Central Government’s sanction is not required to affect increase in the number of directors beyond 12 or the number fixed by articles of association Clause 149 – The Company to have Board of Directors. Exemption given now to maximum of 15 Directors. 9. Section 263(1) In passing resolution for election of directors, all directors can be appointed by a single resolution. Clause 162 – Appointment of directors to be voted individually. Exemption is withdrawn. Single resolution for the appointment of directors can be passed both by private and public company provided, a proposal to move such a motion has first been agreed to at the meeting without any vote being cast against it. 10. Section 264(3) Consent to act as director need not be filled with registrar Clause 152 – Appointment of directors. Exemption removed. Private Limited Companies also to file consent. Exemption is withdrawn. CA SYED USMAN

Certain restrictions on powers of board of directors do not apply 11. Section 269(2) Central Government’s approval is not required for appointment of managing or whole-time director or manager Clause 196 – Exemption is withdrawn. Applicable to Private Limited Companies 12. Section 275 to 279 Restrictive provisions regarding total number of directorships which any person may hold do not include directorships held in private companies which are not subsidiary of public company Clause 165 – The maximum number of companies in which a director can hold office is 20 companies. Out of this he can hold only up to 10 public companies. There is no restriction for private limited companies. One can become director in 20 private limited companies. Exemption is withdrawn. 13. Section 293(1) Certain restrictions on powers of board of directors do not apply Clause 180 – Exemption is withdrawn. 14. Section 295(2) Prohibition against loans to directors does not apply Clause 185 – Exemption is withdrawn. Loan to directors applicable to private limited company 15. Section 300(2) Prohibition against participation in board meetings by interested director does not apply Clause 184 – Exemption is withdrawn. Disclosure of directors interested applicable to private limited company. CA SYED USMAN

There is no restriction on remuneration payable to directors 16 Section 303(1) Date of birth of director need not be entered in the register of directors Clause 170 – Register of directors and key managerial personnel and their shareholding.Exemption is withdrawn. Anybody can view the particulars of the directors through their DIN numbers. 17. Section 309(9) There is no restriction on remuneration payable to directors Clause 197 – Overall maximum managerial remuneration applicable to Public Company. For Private Limited Company this section is not applicable. Exemption continues. 18. Section 316(1) No restriction on appointment of managing director Clause 203 – Appointment of Key Managerial Personnel. Exemption is withdrawn. 19. Section 349 Provisions relating to method of determination of net profits and ascertainment of depreciation do not apply Clause 198 – Calculation of Profits. Exemption is withdrawn. 20. Section 372(A) No prohibition against purchase of shares, etc., in other companies Clause 186 – Exemption is withdrawn. Applicable to Private Limited Companies CA SYED USMAN

The following provisions which exempted private limited companies have been deleted in the Companies Act, 2013. S.No Existing Section in Companies Act, 1956. Particulars Status in Companies Act 2013 1. Section 70(3) Statement in lieu of prospectus need not be delivered to the registrar before allotting shares No provisions exist 2. Section 90(2) Provisions as to kinds of share capital (sec.85), further issue of share of capital(sec.86), voting rights(sec 87), issue of shares with disproportionate rights (sec 88) and termination of disproportionate excessive rights (sec 89) No provision exist 3. Section 165(10) Exemption from Statutory Meeting and Statutory Report 4. Section 170(1) Articles of private company having provisions relating to general meetings without being subject to the provisions of sections 171 to 186 CA SYED USMAN

No share qualification u/s 270 for Directors of a private company. 5. Section 204(6) Can appoint a firm or body corporate to an office or place of profit under the company No provision exist 6. Section 266(5) Restriction on appointment or advertisement of directors as regards consent and qualification of shares does not apply. 7. Section 268 No Central Government approval to modify any provision relating to appointment of managing, whole-time or non-rotational directors 8. Section 273 No share qualification u/s 270 for Directors of a private company. 9. Section 310 No Government approval for change in restriction on remuneration to directors 10. Section 311 No central government approval for increase in the remuneration beyond specified limit of directors on an appointment or reappointment 11. Section 317(4) No restriction on appointment of managing director CA SYED USMAN

12. Section 350 & 355 Provisions relating to method of determination of net profits and ascertainment of depreciation do not apply No provision exist. 13. Section 370(2) No restriction on making loans to other companies No provision exist 14. Section 388A Provisions of sections 386 and 387, which restrict the number of companies of which a person can be appointed as manger, remuneration of the manager, etc., and also provisions of sections 269, 310,311,312 and 317, do not apply 15. Section 409(3) Central Government cannot exercise its power to prevent change in board of directors which is likely to affect the company prejudicially  16. Section 416(1) Person can enter into contract on behalf of company as undisclosed principle and need not give intimation to the other directors THE END CA SYED USMAN